The Supreme Court might have softened its stance on the countrywide ban on all liquor shops on national and state highways, exempting municipal areas, but this has clearly not helped liquor majors much, who are still struggling with low volumes. (Express Photo)
The Supreme Court might have softened its stance on the countrywide ban on all liquor shops on national and state highways, exempting municipal areas, but this has clearly not helped liquor majors much, who are still struggling with low volumes. Diageo, the world’s largest alcoholic beverages company, has even cited low first-half sales growth owing to the liquor ban in India. Sales have also slumped in the ongoing festival season, and analysts anticipate the muted offtake to continue through Diwali. Since the SC ban came into effect on April 1, the first quarter bore the brunt with a 7% decline in volumes (liquor companies don’t disclose monthly volumes) over the same period a year ago, claims Abneesh Roy of Edelweiss Securities. Almost 35% of the vends fall on highways. As the ban came into force, Anand Kripalu, CEO of Diageo India, which controls 40% of the IMFL market, said, “I expect the highway ban will continue to impact our performance for the next few quarters and also that the GST (goods and services tax) implementation is likely to create operational disruption at a macro level in the marketplace, which could also could impact our FY2018 shorter-term performance.”
Though GST doesn’t apply directly to liquor, it impacts glass bottles, molasses, etc, totting up an indirect cost burden on the industry. “Margins (of liquor companies) will get adversely impacted in the second quarter since GST would sky costs,” portends Roy. India is one of the most important sales drivers for Diageo and Pernod Ricard, the top two alcoholic beverages makers worldwide. While French distiller Pernod Ricard SA refused to comment on the impact of the liquor ban on highways, India’s third-largest distiller Allied Blenders & Distillers (ABD) is categorical that approximately 25,000 vends are still shuttered owing to the ban. Along with Diageo and Pernod Ricard, ABD constitutes 60% of the IMFL market.
“Though the impact (of the liquor ban) is waning, it is significantly high in states like Maharashtra where the volume dip in the first quarter of this fiscal sits at 15% compared to the year-ago period,” says Deepak Roy, executive vice-chairman and CEO of ABD. Even Karnataka has registered a sharp drop in sales with 1,441 outlets downing shutters after the ban came into effect in April. The beer market, too, seems to be missing out on cheer in the first quarter with a 15% year-on-year drop, says Shobhan Roy, director general, All India Brewers’ Association (AIBA). At 280 million cases sold in FY2017, beer growth was flat over the previous financial year. However, Roy believes that the true impact of the ban could reduce consumption by as much as 5%. “We are expecting an offtake of 265 million cases this fiscal,” he says. Besides, Roy is quick to point to the spillover effect of the ban this Diwali, with no instance of gift packs from any liquor company, an annual ritual of sorts at least a month prior to the festival of lights. “None of the companies are investing in promotional packaging owing to low volumes and strict regulations.”
Moinak Mitra
